529 Plans: What You Forgot and What’s Changed

Superfunding, the new K-12 limits, the Roth escape valve, and the financial aid math — everything that’s different since you opened a 529 account.

It’s move-in week across the country for the nation’s college population and bill-pay time for those who are paying for it. Which makes it a perfect time to revisit the ins and outs of the premier college savings vehicle: 529 plans. And if you haven’t refreshed your knowledge in a while, like perhaps since you opened the thing in 2008 (yes, kids born in 2008 are now in college), then there are some notable changes to them that have come along the way.

Two things that could save you money this year

We don’t like to bury the lede here on The Greenback, so let’s do some planning. Sometimes the easiest wins are the unforced errors you don’t make. First, make sure you are abiding by the calendar year matching rule. If you pay a tuition bill in December and reimburse yourself in January, you just made a non-qualified and taxable distribution. Expenses and payments have to happen in the same calendar year.

Second, don’t leave money on the table by forgetting the American Opportunity Tax Credit. Since you can’t use 529 dollars for the same expenses that generate the AOTC credit, families that qualify should pay roughly $4,000 out of pocket to claim the full credit rather than running everything through the 529. It phases out at $180k in joint income though, so check with your accountant to see if you qualify.

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